Potential for hostile takeover would create media behemoth bringing together
Twentieth Century Fox and Warner Brothers movie studios and television
channels Fox, HBO, and TMT

Rupert Murdoch is bidding to create by far the world’s largest film and television company with an attempted takeover of Time Warner that would mark a high point in a deal-making career spanning more than 60 years.

Time Warner confirmed on Wednesday that Mr Murdoch’s entertainment holding company, 21st Century Fox, last month offered $80bn (£46.7bn) in a mixture of cash and stock to aquire the rival company.

News of the bid - which represented a 22pc premium on Time Warner’s closing share price on Tuesday - broke in New York before the market opened, and sent shares in the takeover target up more than 15pc.

But the scene is now set for a hostile takeover battle after Time Warner rejected Fox’s firm proposal earlier this month and ruled out negotiations.

It is understood that the 83-year-old mogul and his lieutenants remain determined to do what would be the second biggest media deal in corporate history and create a hugely powerful content owner.

Sources said they believe that with revenues of $65bn the combined company would be better able to stand toe-to-toe in distribution negotiations with tech giant such as Apple and Google, and with rapidly consolidating cable and satellite distributors.

The premium already offered by 21st Cenntury Fox, along with Time Warner’s emphatic rejection of the bid, makes it unlikely that the Murdoch camp will come back with a significantly improved offer, sources said. Instead it is thought Mr Murdoch could launch a proxy battle by convincing major Time Warner shareholders they would be better off if the company accepted the bid.

It emerged that Time Warner, which owns the film studio Warner Brothers and the pay-TV channel HBO, which specialises in big budget drama serials such as Game of Thrones, had rebuffed Mr Murdoch’s proposal in secret earlier this month.

Jeff Bewkes, Time Warner’s chief executive, said yesterday: “The board, after consulting with our financial and legal advisors, determined that it is not in the best interests of Time Warner or our shareholders to accept the proposal or to pursue any discussions with Fox.

“Quite simply, the board concluded that continuing to execute our strategic plan and our business plans will create significantly more value for our business and shareholders, and that that’s superior to any proposal that Fox is in a position to offer.”

On top of its belief in its value as an independent media company, Time Warner said it had concerns that Fox would not be able to properly manage the size and scale of the combination that would be created.

It also noted that the Fox shares offered as part of the bid were non-voting, meaning that the Murdoch family, which owns Fox voting shares, would control the merged company. The two-tier share structure has been controversial as non-voting shareholders have questioned decisions such as the appointments of Mr Murdoch’s sons James and Lachlan to senior executive positions.

In contrast, Time Warner has no controlling shareholder.

“There is significant risk and uncertainty as to the valuation of Twenty-First Century Fox’s non-voting stock,” a Time Warner statement warned.

Fox confirmed it made the takeover proposal but said it was no longer in discussions with Time Warner.

According to Fox’s proposals, which were delivered to Mr Bewkes by Chars Carey, Fox’s president and Mr Murdoch’s right-hand man, the merger would offer $1bn in savings immediately from cuts to back office and sales staff. Longer-term benefits would also be on offer, according to analysts who began speculating about the potential for a deal last month.

Tony Wible of Janney Capital Markets, who first mooted the tie-up, said the pair would benefit from combining their sports rights, studio facilities, film back catalogues, distribution operations and news production.

In an effort to head off concerns that the deal could fall foul of monopoly regulators, however, the bid included proposals to sell of CNN, Time Warner’s pioneering 24-hour news channel. It competes directly with Fox News for audience and advertisers.

Other observers have doubts about the rationale that drive major media consolidations. If Mr Murdoch is successful in his pursuit of Time Warner it would be the second time it has participated in such a takeover. Last time, at the height of the dotcom bubble in 2000, it was bought by AOL for $165bn in a deal seen as one of the worst in history that took nearly a decade to unwind.